What is Price Action?

When you attend a seminar or discussion with the Forex trading community, the term "price action" will definitely come out. At first glance, technical analysis with capital only from the price movements of this chart seems so simple. However, did you know that the sharpness of analysis with price action requires high flight hours to be applied to live trading?
Apart from the myth that price action is able to "project" prices with a high degree of accuracy, keep in mind that the actual price action uses data on price movements in the past. In other words, relying on the patterns of the mere price movements of the puppet cannot guarantee where the direction of prices will move next. If so, what secret technique is this price action?

Well, to be clear, we will thoroughly examine what is price action and how to use it properly.


What is Price Action?
Price Action is the price movement of an asset or a currency pair. Price action analysis refers to technical analysis based on past price movements, where traders try to find patterns in price movements that seem random at first glance.

It should be underlined that what we see objectively is only price dynamics from previous data. Meanwhile, our reaction (order or open position) to the patterns of price movements is fully subjective evaluation.

The question is, how much the subjectivity of a trader will affect the end result of his trading activity (profit / loss)?

Often we stick to a pattern (candlestick or chart formation) and hope that the next price movement will be in accordance with the prediction of the pattern. Sounds very simple, right? Just memorize the patterns then place an order according to the reversal signal or continuity.

Wrong! If you react solely to people only with signals from certain patterns without consideration of other important factors, then what you have done is more or less the same as gambling lottery (install numbers from wangsit).

Basic Price Action Analysis Application
In order for you not to fall into Price Action trading malpractice, you must first understand that Price Action is basically used only as a tool, and not as a final determinant.

So what do you mean?

Price movements on the chart generally will always leave traces with price points that you should consider before opening or ending a position. In outline, Price Action is used as a "magnifying glass" to help identify market conditions (trending or consolidation) and where important points of resistance and support are likely to affect the direction of prices again.



A. Identify market conditions.


Market conditions are generally divided into two types; trending and consolidated (sideways). Price action can help us identify these conditions by paying attention to the high and low prices.

The trending market condition itself is further divided into two types; uptrend and downtrend. Uptrends can be identified from high high prices (HH, higher highs) and high low prices (HL, higher lows). Whereas Downtrends are identified from low high prices (LH, lower highs) and low low prices (LL, lower lows).


Difficulty or confusion in determining where the position of HH, HL, LH and LL is due to its "zigzag" position? If so, then at that time you are facing a consolidated market condition (sideways).



The process of identifying market conditions above can help traders decide to open positions based on trading styles (for example, swinger will prefer trading in trending conditions) and risk management.



B. Identify points of resistance and support.

The second important point of the price action application is to find out the price points of resistance and support. These price points are vital in their use because the continuity of a trend is likely to go back in direction because of the "recurring" nature of the market.

Pay attention to the candlestick on the first red circle (from the left). It is clear that at the price point "pulled" back down to touch the support limit. The first candlestick becomes a strong resistance limit because of its long down-swing (proven on the second red circle).

Likewise in the first blue box (from the left). The price returns "bouncing" every time it hits the support limit. The second blue box strengthens the boundary. As a result, the blue circle shows a reversal near the support line.

Generally, the inside bar and pinbar patterns are often formed at support and resistance points.


Supporting Factors for Price Action
Again, Price Action cannot guarantee 100% accuracy of the signals. This is influenced by various factors, including:

Time Frame
The frequency of occurrence of the candlestick bar (or other chart) is influenced directly by the time frame of your choice. For example, the h4 time frame will display the bar every 4 hours, while the daily time frame will only incubate the bar once a day. The impact, the lower the time lag (under H4), the risk of the emergence of fake signal will be higher.

Forex calendar
Market driving news releases (NFP, GDP, Retail Sales, CPI, etc.) can be a "double-edged sword" for traders with a price Action guide. Price movements generally return to normal not long after the news release has a major impact. Therefore, use the forex calendar to ensure that you don't miss the hottest news.


Conclusion
Although the price action at first glance seems simple, the application for live trading requires flight hours and high alertness. You must consider several factors at once before reacting to a signal from the patterns on the chart.

Do not be discouraged, at least you know the application of the basic price action of this article. Furthermore, from there you can develop trading strategies based on price action dynamics.

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